Modeling institutional evolution
Author
Neyapti, B.
Date
2013Source Title
Economic Systems
Print ISSN
0939-3625
Electronic ISSN
1878-5433
Volume
37
Issue
1
Pages
1 - 16
Language
English
Type
ArticleItem Usage Stats
105
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91
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Abstract
This paper proposes a formal framework to analyze the process of institutional evolution in relation with economic progress. Institutions have both formal (F) and informal (N) aspects that may exhibit varying processes of change. N is hypothesized to evolve with the level of capital stock, as in learning by doing, whereas F is chosen optimally by a government that maximizes output subject to social and political costs. F and N together define the production technology and affect the income level. Consistent with evidence, simulations of the model's solution reveal that optimum F exhibits a punctuated pattern.